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Unlocking the Potential of Tax Assets: A Key to Strategic Wealth Management

By Carmine Coppola

Have you ever wondered how you can legally reduce your tax bill and keep more of your hard-earned income? Tax assets represent one of the most underutilized tools in a high-net-worth individual’s financial arsenal. By harnessing the power of deferred tax assets, you can not only save on taxes today but position yourself for greater financial growth tomorrow.

At Strata Capital, our team and has spent the last decade helping high-net-worth corporate professionals optimize their financial strategies, including harvesting tax assets. Let’s dive into what tax assets are, how they work, and why they’re a critical component of your long-term wealth strategy.

What Are Tax Assets?

At their core, tax assets are financial tools designed to reduce future tax liabilities. Think of them as a strategic buffer—a reservoir of potential savings that can be tapped when the timing is optimal.

There are two main categories:

Deferred Tax Assets: These arise when you’ve overpaid taxes or incurred losses in a given year. These losses can be carried forward to offset future taxable income.
Tax Credits: These directly reduce the taxes you owe, much like a gift card for your tax bill.

Today, we’ll focus on deferred tax assets. They offer control and flexibility in managing tax liabilities over time—a critical advantage for high-net-worth individuals.

Why Deferred Tax Assets Matter

Deferred tax assets aren’t just a tax-saving measure; they’re a strategic lever to enhance your financial picture.

They allow you to offset gains from investments, significantly reducing your tax obligations. For example, if you sell a stock with a $100,000 gain (with a 15% tax rate), you’d owe $15,000 in taxes. However, if you also have $50,000 in unrealized losses, selling those positions could cut your tax bill in half.

They enable tax deferral for greater growth. By deferring taxes, you can keep more of your money invested, allowing it to compound over time. This creates a “tax asset balance” that can be carried forward, providing long-term financial advantages.

Case Study: Strategic Tax Asset Harvesting

Let’s say you have a $100,000 unrealized gain on a stock and a $300,000 carryforward loss from prior years. By applying $100,000 of that loss against the gain, your net tax liability is reduced to $0.

This strategy isn’t limited to stocks. The same approach can extend to other areas, such as real estate investments or the sale of a business.

For those in high-tax states like New York, the benefits are even greater. New York allows you to carry forward losses at the state level as well, creating additional savings opportunities.

Reducing Ordinary Income Taxes

Deferred tax assets aren’t limited to investment gains. In many jurisdictions, you can use them to reduce your ordinary income tax liability as well.

For example, up to $3,000 in capital losses can be deducted from your ordinary income each year. While $3,000 may seem small, over time, it adds up and becomes another layer of financial efficiency.

Risks and Considerations

No financial strategy is without risks, and tax asset harvesting is no exception.

This approach requires a deep understanding of tax laws, timing, and how it fits into your broader financial plan. Missteps could lead to missed opportunities or unintended tax liabilities.

This is why it’s essential to work with a trusted advisor who specializes in tax optimization for high-net-worth individuals.

The Strata Capital Advantage

At Strata Capital, we don’t just harvest tax assets—we craft personalized strategies that integrate them into your broader financial goals.

Our concierge-level service ensures every aspect of your wealth management is aligned, from investment planning to estate strategies. By acting as the central conductor of your financial team, we simplify complexities so you can focus on your career, family, and legacy.

Take Action Today

Tax assets are one of the most powerful yet underutilized tools in your financial toolkit. By understanding and gathering them, you’re not just reducing taxes—you’re creating opportunities for growth and financial freedom.

If you’re ready to unlock the full potential of tax assets, schedule a consultation with Strata Capital today. Together, we’ll pull back the curtain on the financial industry and create a higher standard for your wealth management.

Strata Capital is a wealth management firm serving corporate executives, professionals, and entrepreneurs in the New York Tri-State Area, focusing on corporate benefits and executive compensation. Co-founded by David D’Albero and Carmine Coppola, the firm specializes in making the complex simple to ensure clients feel confident in their financial decisions. They can be reached by phone at (212) 367-2855, via email at carmine@stratacapital.co, or by visiting their website at stratacapital.co.

Cornerstone Planning Group, Inc., (“CSPG”) is an SEC registered investment advisory firm. The information contained herein should not be construed as personalized investment advice and should not be considered as a solicitation for investment advisory service. The information (e.g., tax ) provided is believed to be accurate however CSPG does not guarantee or otherwise warrant such information. For more information regarding CSPG you can refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) and review our Form ADV Brochure and other disclosures.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Ignoring These Legal Documents Could Cost You Everything

By David C. D’Albero II

No matter where you are on your financial journey—whether just beginning to build wealth or firmly established—having the right legal documents in place is critical. These foundational tools not only protect your assets but also ensure your loved ones are cared for, no matter what life throws your way.

Here’s a breakdown of the five essential legal documents that every adult should have to safeguard their legacy and avoid unnecessary stress for their families.

A Will: Your Plan for the Future

A will is often the first legal document that comes to mind in estate planning—and for good reason. It outlines your wishes for how your assets will be distributed after your passing. But its importance goes beyond just dividing wealth.

Protect Minor Children: A will allows you to designate guardians for your minor children, ensuring they are cared for by someone you trust.
Avoid Probate Chaos: Without a will, the state determines how your assets are distributed, which can lead to disputes and lengthy court proceedings.

Don’t assume a will is only for the wealthy. Even modest estates benefit from having a clear, legally binding plan in place.

Durable Power of Attorney: Financial Protection When You Need It Most

A durable power of attorney allows you to name someone to manage your finances if you become incapacitated. This trusted individual can handle bills, investments, and other financial matters on your behalf.

Without this document, your family might need court approval to manage even basic financial responsibilities, adding unnecessary delays and stress. A durable power of attorney serves as a financial safety net, ensuring your affairs run smoothly even in challenging times.

Healthcare Proxy: Giving a Voice to Your Medical Choices

Who will make medical decisions for you if you’re unable to? A healthcare proxy gives someone you trust the legal authority to ensure your wishes are followed.

Reduce Stress for Loved Ones: This document spares your family from having to guess your preferences in critical moments.
Align with Your Wishes: It ensures decisions about treatments, surgeries, or other medical care align with what you would have wanted.

Living Will: Your Voice When You Can’t Speak

A living will works hand-in-hand with your healthcare proxy by specifying your preferences for medical treatment if you’re unable to communicate. This document addresses sensitive issues like:

Resuscitation
Life support
Organ donation

By having a living will, you ensure that your values are honored while easing the emotional burden on loved ones who might otherwise have to make difficult choices on your behalf.

Revocable Trust: Flexibility and Privacy

Often overlooked, a revocable trust is a powerful tool for managing your assets both during your lifetime and after.

Avoid Probate: Assets in a revocable trust transfer to beneficiaries without going through probate, saving time and money.
Maintain Privacy: Unlike a will, trust details don’t become public record, offering a layer of confidentiality.
Simplify Multistate Property Management: A revocable trust is particularly beneficial for those with property or investments in multiple states.

This flexible, secure document can make estate planning far more efficient for families, ensuring your wishes are carried out seamlessly.

The Bottom Line: Protect Your Legacy Today

These five legal documents form the foundation of a sound financial and legal plan. Having them in place gives you confidence that your assets will be protected, your wishes honored, and your loved ones supported.

Don’t wait for a crisis to begin planning. If you need help getting started, Strata Capital is here to guide you every step of the way. Our personalized approach ensures your plan fits your unique circumstances, offering peace of mind for today and tomorrow.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Understanding Risk Tolerance: A Strategic Imperative for Corporate Professionals

By David C. D’Albero II

Understanding and managing risk tolerance is crucial, particularly for corporate professionals who navigate complex financial landscapes. Risk tolerance refers to the degree of variability in investment returns you’re willing to withstand—essentially, how much potential loss you’re prepared to accept in your portfolio in exchange for the possibility of higher returns. For executives managing significant assets, aligning your risk tolerance with your investment strategy is not just important—it’s a strategic imperative.

The Role of Risk Tolerance in Professionals’ Investment Strategies

As a corporate professional, especially in dynamic areas like the NYC metro and New Jersey, your financial decisions are often more complex than those of the average investor. Risk tolerance isn’t just a personal preference; it’s a vital component of your overall financial strategy. Executives with lower risk tolerance might prefer a portfolio that leans heavily on conservative assets like cash equivalents, bonds, or other fixed income investments. These options offer stability but typically come with lower returns.

On the other hand, if you have a higher risk tolerance, your portfolio might be more heavily weighted in stocks and other higher-risk assets. This approach can yield higher returns but also exposes you to greater volatility. For highly compensated professionals, the key is to invest according to your specific risk tolerance and broader financial objectives. For instance, if you prefer to minimize risk, you might allocate only 35% of your portfolio to stocks, with the remaining balance in bonds, fixed income, or alternatives like commodities, hedge funds, or real estate. These alternative investments can help mitigate volatility, offering a diversified approach that aligns with your risk profile.

Avoiding the Pitfalls of Misjudging Risk Tolerance

Corporate professionals often have a higher appetite for risk due to their professional experiences and successes. However, it’s easy to misjudge risk tolerance, especially when basing it on periods of strong market performance. During bull markets, even seasoned professionals can fall into the trap of overconfidence, assuming that the market will continue to perform well indefinitely. This mindset can lead to a misalignment between your actual risk tolerance and your investment strategy.

Risk tolerance isn’t about gauging how comfortable you feel during good times. It’s about assessing your ability to withstand downturns or significant market volatility—much like what we saw during the 2008 financial crisis or in more recent market disruptions. If your portfolio is too aggressive for your true risk tolerance, you may find yourself making impulsive decisions, like selling off investments at a low point, which can severely impact your long-term financial goals.

Assessing Your True Risk Tolerance

For highly compensated corporate professionals, understanding your true risk tolerance is essential. Begin by reflecting on how you felt during the most recent market downturn. Did it cause you significant anxiety? Were you tempted to make quick, emotion-driven decisions? If so, this might indicate that your current investment strategy is too aggressive.

Another effective way to assess your risk tolerance is by using a structured risk tolerance questionnaire. This tool can help you evaluate your financial goals, time horizon, and comfort level with risk, offering a more accurate picture of your risk profile. Honest answers to these questions will provide crucial insights that can guide your investment decisions and ensure they align with your financial objectives.

Time Horizon: A Key Factor in Risk Management

As an executive, your time horizon—the length of time you expect to hold an investment before needing to access it—is another critical factor in managing risk. Typically, the longer your time horizon, the more risk you can afford to take on, as you have more time to recover from potential market downturns.

There are two primary types of time horizons to consider: income cash flow time horizons and lump sum time horizons. For example, if you’re planning for retirement, your strategy will likely focus on generating long-term income, rather than liquidating assets immediately upon retirement. In contrast, if you’re saving for a large purchase, such as a vacation home or a significant business investment, your strategy will involve liquidating your portfolio at a predetermined future date.

Understanding and planning around your time horizon is crucial because it influences how you allocate your investments. Mismanagement in this area can lead to significant setbacks, especially when timing is critical to achieving your financial goals.

Strategic Management of Risk Tolerance

Mismanaging your risk tolerance can have significant consequences, particularly for corporate executives with complex financial portfolios. If you’re too aggressive with short-term investments, you could incur substantial losses with insufficient time to recover. Conversely, being overly conservative with long-term goals could result in underperformance, leaving you short of your financial targets when your time horizon ends.

To avoid these pitfalls, it’s essential to consider the specific purpose of your investments. Most professionals have multiple financial goals, each with different time horizons and risk tolerances. For example, the strategy for a short-term investment goal, such as funding a child’s college education, will differ significantly from your long-term retirement strategy.

Working with a financial advisor who understands the unique challenges and opportunities faced by corporate executives is key. Together, you can complete a cash flow analysis to determine how much you need to save and invest to meet your goals. By starting early and leveraging market growth, you can optimize your investment strategy and minimize the financial burden on your capital.

For corporate professionals, understanding and managing risk tolerance is not just a financial necessity; it’s a strategic advantage. Regularly reviewing your risk tolerance and time horizon ensures that your investment strategy remains aligned with your evolving goals and the market landscape. By taking a proactive approach, you can navigate the complexities of the financial markets with confidence and achieve your long-term objectives.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Leveraging Deferred Compensation Plans for Strategic Financial Growth

By Carmine Coppola

Deferred compensation allows you to delay receiving a portion of your income until a later date, which can be particularly advantageous if your taxable income is expected to be lower in the future. For many, this strategy mirrors the familiar 401(k) plan, a qualified deferred compensation plan protected by the Employee Retirement Income Security Act of 1974 (ERISA). While 401(k) plans have their benefits, particularly for the average employee, they come with restrictions that can limit their utility for high earners. This is where non-qualified deferred compensation (NQDC) plans step in, offering far greater flexibility and potential benefits.

What Are Non-Qualified Deferred Compensation Plans?

Non-qualified deferred compensation plans, often referred to as elective deferral plans or supplemental executive retirement plans (SERPs), provide a powerful tool for high-income earners to manage their income and tax liabilities strategically. Unlike qualified plans like 401(k)s, NQDC plans do not have the same contribution limits, age restrictions on withdrawals, or required minimum distributions (RMDs). This means you can defer a significant portion of your income, reducing your taxable income for the current year while allowing the deferred amount to grow tax-deferred until you choose to withdraw it.

Moreover, many NQDC plans allow you to select your investments and may even include a company match—essentially a raise that can further enhance your financial growth. These plans are sometimes called “golden handcuffs” because they can be used by employers to incentivize retention among their most valuable employees. The more you earn and defer, the more you stand to benefit from the tax advantages, making NQDC plans an attractive option for those planning to stay with their employer long-term.

Strategic Considerations for NQDC Plans

Participation in an NQDC plan requires careful planning and decision-making. Typically, you’ll need to enroll during a designated period and establish a written agreement with your employer. This agreement outlines critical details, such as the amount of income you’ll defer, the deferral period or distribution schedule, and your investment choices. Once these elections are made, they can be challenging, if not impossible, to change, so it’s essential to approach this decision with a clear understanding of your financial goals and the potential long-term impact.

To simplify the process, it’s helpful to break down your strategy into three main components:

1. Purpose: What specific goals do you want to achieve with your deferred compensation? Are you saving for retirement, a child’s education, or a major purchase like a vacation home?

2. Amount: How much of your salary or bonus will you defer each year? This decision will depend on your current financial needs and your future goals.

3. Timing: When do you want to start receiving distributions, and how long do you want them to last? Your timing will affect your tax liabilities and your ability to meet your financial goals.

Practical Examples of NQDC Plan Utilization

To illustrate how NQDC plans can be strategically leveraged, consider the case of Gianna, a highly compensated employee with a salary and bonus totaling $550,000 per year. Gianna also receives $50,000 annually in restricted stock units (RSUs) and is withdrawing $25,000 per year from an inherited IRA. This puts her total income at $625,000, placing her in the highest federal tax bracket with an effective tax rate of 30.7%. Gianna doesn’t need the additional $75,000 in income from the RSUs and IRA, so she decides to defer $75,000 of her bonus each year into her NQDC plan. By doing this, she reduces her taxable income to $550,000, dropping her just below the threshold for the highest tax bracket and saving her approximately $27,000 in federal taxes annually. Over ten years, this strategy could add $750,000 to her retirement savings, not including investment growth, while maintaining her current lifestyle.

Another example involves Bill and Laura, a couple with ambitious financial goals. They plan to cover their children’s college expenses and purchase a dream vacation home. Bill, who has an NQDC plan through his job, decides to defer $50,000 per year into three different accounts within the plan, each aligned with a specific goal. One account will cover their son’s college expenses, another their daughter’s college expenses, and the third will be used for the down payment on the vacation home. By carefully structuring their deferrals and distributions, Bill and Laura can achieve these goals without disrupting their cash flow or lifestyle.

Addressing Income Gaps and Retirement Planning

NQDC plans can also be a valuable tool for addressing income gaps in retirement. For example, John and Sarah plan to retire at 62 but want to delay taking Social Security until they turn 67. This creates a five-year income gap. By deferring a portion of her bonus each year, Sarah can use the distributions from her NQDC plan to fill this gap, allowing their retirement and investment assets to continue growing. This strategy also gives them the flexibility to maximize their Social Security benefits by delaying them until age 70.

Mitigating Risks and Planning for the Unexpected

It’s essential to recognize that while NQDC plans offer significant benefits, they also come with risks. For instance, if your company undergoes layoffs or restructuring, you could face financial uncertainty. However, if you’ve been deferring a portion of your income into an NQDC plan, you may have a financial cushion to fall back on. Consider the case of Mike, a 55-year-old vice president who began deferring part of his bonus each year. With a current plan value of $350,000, Mike has the flexibility to manage his income if he’s laid off, retires early, or decides to work for a lower salary. His NQDC plan allows him to supplement his income, cover health insurance costs, and delay taking Social Security until it’s more advantageous.

Non-qualified deferred compensation plans are a potent tool for high-income earners looking to strategically manage their income, reduce tax liabilities, and achieve long-term financial goals. However, these plans are complex and require careful planning and ongoing management. Before making any decisions, it’s crucial to collaborate with a seasoned financial professional who can help you navigate the options and ensure your deferred compensation plan is intricately woven into your broader financial and retirement strategy. By taking a thoughtful approach, you can leverage your NQDC plan to secure a more flexible and financially stable future.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.